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Regular client wants me to reduce prices

Howdy everyone.

I started working with a client a few months ago and we've done a few projects together. All the projects that he needs have a lot in common in the way they all have a registration, login/logout system, same user management features, same payment integration for his products, etc.

Since our last project I've coded things so that I can re-use all the common components in the projects. This way, I won't have to code the payment integration, user management, etc features from scratch for each project and I can just re-use them and code only the core features which make the projects different from each other.

But the problem is, the client also realizes this and now he wants me to cut off my costs by about 45-50% percent for each project we do in the future. I've convinced him to do another project with me for our usual price, but I'm pretty sure that once this one is done he would want me to reduce prices for the future projects.

Technically, yea, the code that I'll be re-using makes up about 50-60% of each project, but lets not get into a debate about whats moral and not. Everyone is in the business to make money, and while I can re-use this code for each project, i had to put in many hours of hard work into this code and I don't want to just give it away for free for each project. I'm sure there are lots of developers reading this who can relate to this.

What should I do? I like working with this guy and having a stable client is pretty nice, but I also feel that I might be missing on higher paying clients. Also its just not worth it to me to do a project for half of how much I charge for it, even if I have to work less on it.

There are a lot of people who will go on and on about 'value based pricing' in a circumstance like this, but I think in a situation like this you are ultimately going to have to accept 'reality based pricing'. If a client knows that you are repurposing code, they are always going to feel awkward paying the same price over and over again because the reality is that the value does decrease a bit.

A more fair approach would be to engage the client in a mutually beneficial arrangement where he's paying for actual value. Something like this:

1) The codebase is being repurposed, but that does't mean you have to give it away for free. Figure out a license fee for that codebase, and make sure that it's much lower than he's paying now. After all, you are charging him to re-use your code and you can honestly charge him for that using a license fee. It should be low, though, because the 'use' of a finished codebase should cost less than the original development, per fair market dynamics.

2) Establish an hourly rate for customization of the codebase. This means that your actual time spent servicing the client will be compensated with a dollar amount that exactly correlates to your efforts.

With an approach like this, you can ensure that you aren't giving away your code or your time. You should also be able to reduce the cost to the client by about 1/3 (well, you can make it work that way). The trick is to keep the license cost VERY LOW and your hourly rate VERY HIGH but still make it come out as a reduction of about 1/3 (or whatever) to the client. This way, you are protected from getting screwed in the future if the clent wants massive customization to the codebase, etc.

I say, give the client a discount and establish license/hourly arrangement - everyone wins that way and you get to keep the client. If you really think that the client isn't worth your time and is preventing you from doing other work, that should be reflected in your hourly rate - increase it until you are satisfied and make your own decision about whether to keep this client based on the bottom line.

another option is to make sure that you find a reason within each project to slight;y customise the code base. This way, each project stays unique and you can charge full price for your library every time. Of course it could be more than full prize.

Off topic I know, but it always amazes me how clients are willing to wait and pay you XXXX for doing something difficult and new, but are only willing to pay you XX once you know what you are doing and can cut the waiting time in half for them.

I think you need to ask yourself, if a new client were to ask for similar code, would you charge them xxxx or xx? After all, each client should be on a level playing field with the next, shouldn't they?

Linda Jenkinson"Say what you mean. Mean what you say. But don't say it mean." ~Unknown

Then tell him that he's already getting a discount. Also, sit down and talk with him to see if there are new things he wants on his site, things you can charge him for, that perhaps you can use to keep your prices at or near their current level.

I'd recommend that you not be deceptive about your pricing structure. People know when they are being shaken down and it may affect your reputation.

Sagewing has a good model - you really cannot ask to be paid for work that has already been done. But you can charge a very high rate for customizing the product since you created it and you have all the knowledge of that product.

If they asked another developer to customize the product you can bet they will take longer and do not as good a job even if they have a lower hourly rate.

The license fee is also good since you may own the copyright so it is a legitimate 'product' they have aquired.

I just asked the owner of a particular piece of software to install it for me and they quoted $175/hr for 6 hrs. This may be a bargain if I get the foremost expert to do it.

After all, each client should be on a level playing field with the next, shouldn't they?

Why is that? I give established clients better deals on just about everything. I trust them, I know they'll pay, I know they'll be nice to work with, and I value them more than a brand new client who might be painful to work with. Also, I don't have to factor in the cost of signing an established client because they've been with me for years, so I take that into consideration.

I'd prefer to make less money on a client as opposed to losing them entirely. If I were in the OP's situation and I wanted to keep the client, I'd work with the client to make a nice deal for both of us.

And, as a client myself (to my vendor groups) I am usually able to negotiate better deals for myself as compared to their other clients, because I pay on time and try to be easy to work with. So, I certainly don't like a level playing field - I'd rather compete!

Just a thought to consider. When Microsoft has made their money back with their next version of windows do they half the price ? The software components that your client is buying have a value. Just like any other saleable commodity.

If this is going to become an issue with this client then perhaps you can offer him a slight volume discount but never forget you are running a business. Ask your client if he would reduce his prices just because he's already made back his development costs. You have to make a living otherwise you would not be around to create his sites for him.

Just a thought to consider. When Microsoft has made their
money back with their next version of windows do they half the price ?

No, they just stop selling it. They allow any license holder of a new version to freely download and use the old version under that product, which means that when you purchase a newer version you get the old ones for free. You could say that they discount the price by more than half.

Originally Posted by ricktu

never forget you are running a business.

If you are going to run a business with the mentality of 'get as much $ as you can because you are running a busines', then you aren't going to be running a business for long. While you talk about NOT making good deals for smart clients, there are other people making great deals for them.

Ask your client if he would reduce his prices just because he's already made back his development costs.

I'll definitely do that, thanks for the idea!

Originally Posted by sagewing

No, they just stop selling it. They allow any license holder of a new version to freely download and use the old version under that product, which means that when you purchase a newer version you get the old ones for free. You could say that they discount the price by more than half.

If my client wanted a copy of the products I've already built for him, I'd of course give them for free. But what I *won't* do is building a new site for him for half of the cost, while he makes the same amount of money from each site. (i.e if he made, say, $10k with the first site i built, i don't want to build him another site for half the price of the original site, even if it re-uses the components, while he still makes another $10k from the site. It would mean that his costs went down, while his profit remained the same/increased, just because *I* will be re-using the libraries that *I* built for him.

Originally Posted by sagewing

While you talk about NOT making good deals for smart clients, there are other people making great deals for them.

Sagewing, buddy, you don't know my client. I bet if I was working for you, even if I lowered my prices for you as compared to what I'd charge other people, from what I've read in your posts I'm pretty sure that I would still get a lot of value from that deal, even if not monetary value, somehow. May be you would recommend me to your friends, may be you'd write about me on your blog, may be you'd help me with anything else, but I'm sure you would give me more value than the other clients who I would charge more.

But this guy is all, take take take, and give as less as possible. I actually did some customer support for one of his sites but decided to call it quits after a few days, and now he is trying to make excuses so he doesn't have to pay me for the one week support I did. Can you believe that!

A bad client is a bad client, so you'll never really get any advice that applies to a situation where the client just isn't behaving reasonably.

However, I disagree with the 10k per site concept that you mentioned above. It's folly to think that just because someone is re-purposing your code and making money on it that they should pay over and over again. That's what licensing deals are all about. You said that you wouldn't want to build him another site for half the price while he makes 10k per site on it, but I would take the absolute opposite approach.

If a client could make 10k per site on something I could resell to him cheaply, I'd strike a sweet deal and hope that he makes tons of money. I'l make more that way than I ever would trying to charge him full price each time - he's bail out after one or two.

I have clients that massively mark up the fees I charge for my offshore teams, but I don't care. I like it! The more money they'll make, the more they'll spend with me.

For every vendor acting on principle, spite, or inexperience with an attitude like, 'I wont give them a discount for re-using my code when they are making big money on it' there are people like me wanting to take that money and go long-term with the client.

Nevertheless, it sounds like this client is pretty useless so none of this applies
good luck!

- I'd be willing to do a discount, a 10-25% discount, but a 50% discount, are you kidding?

- If I do a deal with him so he gives me a percentage of the amount he makes (is that what you meant?), I won't trust him to pay me my fair share to be honest.

- I've had clients in past who made $100k+ off some sites i did for them, and I was actually happy for his success and worked harder for him! Why? Because he slightly overpaid me and gave me a bonus for those projects. My guess is that those clients of yours who you said 'massively marked up your fees', they did pay you nicely for the projects, even if they massively made a profit, right? If they were under-paying you, i don't think you'd be that happy about that either..

Well, I don't set arbitrary rates so I don't really care what my clients do with the work. If they make huge profits on the work, that's great for everyone. But, I resist anything arbitrary so I would never say something like '50% discount, are you kidding?' because you never know. 50% is just a number. I have been known to give 100% discounts if the deal works for me (I did a development project for as part of a real estate deal once), and a 50% discount isn't so bad if you have enough margin in your cost. Anyways, a client who is 'underpaying' isn't a client of mine.

No, they just stop selling it. They allow any license holder of a new version to freely download and use the old version under that product, which means that when you purchase a newer version you get the old ones for free. You could say that they discount the price by more than half.

Huh ? I've absolutely no idea what you're trying to say here. I was saying that windows is not now half price because either they've made their money back already nor because I already own a copy of it. If I want a second or third copy it does not cost me less. You've obciously not understood my point as I from that I can't get why you are arguing with me.

Originally Posted by Sagewing

If you are going to run a business with the mentality of 'get as much $ as you can because you are running a busines', then you aren't going to be running a business for long. While you talk about NOT making good deals for smart clients, there are other people making great deals for them.

Man you're out to get me today aren't you ? Where the hell did I even suggest the idea of "getting as much as you can for them" ? I look after my clients and they never feel that they get anything less than full value from me. A large majority of the work involved in putting together a website is reusing existing ideas and segments of code. Does that mean with each progressive site I do it gets cheaper each time ? I don't think so.

Man are you making a judgement on me based on one simple comment. What bit you today?

When you built the first site with reusable code, did you charge him full value for it? Or did you charge him a discounted rate in anticipation of getting more work that uses the code? If the time spent on the original site was completely paid for, at full price then it probably doesn't make sense to charge the same amount for each subsequent customized site. I'm thinking economies of scale? If you gave a discount for the first site, then I could see where each subsequent site could get a piece of that original overhead charged back. (amortization of cost) But this probably all should have been discussed at the outset of the projects.

What's the effort amount to customize each subsequent site? If it's half the effort of the what the original was, I could see where the requested discount was coming from. It's probably one of those cases where each subsequent site may do better off with hourly billing instead of a set project rate. Some sites may require more customization than others so I could see how the client would raise an eyebrow to charging the same rate for each project when the requirements loads are different. (i.e. if the original site cost X and a customized version that only changed the background color and a few graphics also costs X)

It really depends on how much communication there was at the start and understanding of how a primary project with subsequent spin-offs would work.

Huh ? I've absolutely no idea what you're trying to say here. I was saying that windows is not now half price because either they've made their money back already nor because I already own a copy of it. If I want a second or third copy it does not cost me less. ...

But each unit sold represents a part of the development costs based on the estimated number of units they expected to sell plus the production, distribution, and marketing costs plus a profit percentage. Not to mention a determination about how much the market will take. If they determine the cost of each expected unit is $1000, they aren't going to be able to get the average home user to buy it. But, if they sell it as a loss leader, they make their money on other applications that run on the base that they can sell for more money.

Comparing the OP to commerical software development/sales probably isn't a close enough apples to apples comparision. They're similiar but the complexity is completely different.

<edit>
That's not to say that Microsoft couldn't make a ton of money on the app (and I think they do because of the usage rate). What I'm saying is more of a generic answer. Each version isn't a complete rewrite so their new development costs are probably not as high as the original. If people will keep paying X, then that's probably how they are making the money they are.
</edit>

Thats all great mate but again thats not my point. I was not using the analogy to suggest how he should price his products. Just that the price doesn't have to drop just because someone buys the same thing again.

With all due respsect, I understand that your analogy was taken in slightly the wrong way, but there's no need to be defensive.

Let's evaluate your analogy again:

Originally Posted by ricktu

When Microsoft has made their money back with their next version of windows do they half the price ?

Actually, they start reducing the price far before that in the form of volume pricing , which relates to the original poster's scenario (in that a single client is purchasing the same thing over again over, reducing Microsofts marketing cost per sale for that client).

We also see a dramatic redution in cost for the xbox, which appears to have been a market-based cost reduction as opposed to a loss leader, etc.

And, you should also consider the fact that Microsoft does reduce the retail pricing of their pdoucts as time goes on, with Windows XP seeing a reduction in price not long after release. So, to some degree the answer is YES, they do reduce the price once they've recouped their investment to some extent.

This is what successful business do - they look for ways to increase their overall profits in the long-term rather than trying to squeeze every dime from every client. If I can swing a great deal for client who I think will be loyal for a long time, I do it. Looks like Microsoft does, too.

Well, maybe it's not a 50% price reduction, but hey it's your analogy!
Anyways, I hope that this is a more relevant response to your previous comment.

Just a thought to consider. When Microsoft has made their money back with their next version of windows do they half the price ? The software components that your client is buying have a value. Just like any other saleable commodity.

No, but they also don't force you to buy Word everytime you want to write a new letter or book.

BP

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I started working with a client a few months ago and we've done a few projects together. All the projects that he needs have a lot in common in the way they all have a registration, login/logout system, same user management features, same payment integration for his products, etc.

Since our last project I've coded things so that I can re-use all the common components in the projects. This way, I won't have to code the payment integration, user management, etc features from scratch for each project and I can just re-use them and code only the core features which make the projects different from each other.

But the problem is, the client also realizes this and now he wants me to cut off my costs by about 45-50% percent for each project we do in the future. I've convinced him to do another project with me for our usual price, but I'm pretty sure that once this one is done he would want me to reduce prices for the future projects.

Technically, yea, the code that I'll be re-using makes up about 50-60% of each project, but lets not get into a debate about whats moral and not. Everyone is in the business to make money, and while I can re-use this code for each project, i had to put in many hours of hard work into this code and I don't want to just give it away for free for each project. I'm sure there are lots of developers reading this who can relate to this.

What should I do? I like working with this guy and having a stable client is pretty nice, but I also feel that I might be missing on higher paying clients. Also its just not worth it to me to do a project for half of how much I charge for it, even if I have to work less on it.

You seem to be getting some rather critical feedback on your post in this thread.

Frankly, you first need to deal with your own reality, which is maintaining a lifestyle that offers rewards well above the subsistence level.

It is in the interest of business to negotiate what they pay a professional as close to this subsistence level as possible. If this were not the case China and Mexico would still be third world countries.

But it is also in your interest that in order to maintain a lifestyle that is well above the subsistence level repeat clients must be rewarded for their continued support of your comfortable lifestyle. What this means is that you recognize and promote this process through a proper licensing agreement that outlines how your code is to be used and what the licensing fees are.

This way you avoid the confusion you are facing now.

What you make on the license has zero to do with the amount of work you do as was stated mistakenly and simplistically earlier in the thread.

If you own the rights to the code you should be getting a fair and reasonable recompense for its reuse. And in this case volume pricing should only be offered to this client IF he actually purchases in volume, which is to say, for example, 20 websites at ONE time.

Stick to your guns, there are many people out there and here who are very happy with subsistence- don't be one of them.

Very nice sentiment, but his lifestyle has little to do with the value of the code. Like almost all other software, the repurposing of the code has less value than the original development. Perhaps you can beat the forces of a marketplace, but why try? Be competitive, and grow that way. I think that the 'stick to your guns' mentality doesn't really change the value of anything, and the market will prevail.

In the long run, you will probably make a much higher profit by keeping the client than losing him. If you think you can charge the same amount and keep the client, then do so. Otherwise, lower your price to the level where you will keep him onboard as a regular customer.

Oh - and charge as much as you feel you can, not by the hour.

This isn't a product, it's a service (so ignore the Microsoft idea) - never operate set prices from client to client, just charge them what you feel they will accept, and what's fair for you in that particular moment right there. Then stick to the same style for that client.

I'm also leaning to not reducing the price. I think the discussion leans very much towards what you charge for the same code. I think the problem lies exactly in that you charge for the code and not the service of delivering it. If you packaged it up with predictablity, a relationship and other intangible values, this issue wouldn't be raised.

I come across similar problems now and then and one of the things I often say is that I bring a 6 year old code library with me. If a client wants to reduce prices for re-using items, they might as well pay for 6 years of coding when they start working with me. It is obvious that no-one wants to pay for that, so it is only fair that they pay for the intangible value they get every time you deliver the same code with a certain service.

I have found the following two books of value to establish above scheme: "Million Dollar Consulting" and "Full Price". PM me for authors, if you can't find them.

My advice is to just make slight changes to each website, making each and every one unique to itself.

Clients seem to forget that you doing them a half price website, isnt going to keep a roof over your head, or feed your kids. Just keep a set price, if the client doesnt like it, then you have to let them go and find somewhere else, simple as that.

Remember, in business, there is no such thing as friendship, You are out there to make money, and Look after yourself